Paul Volcker speaks up

Ever since his book came out, it seems Alan Greenspan can't shut up. Even this week, he was pronouncing the current economic crisis the worst since World War II.

His predecessor, in contrast, has kept a lower profile. So it's worth noting that Paul Volcker went on Charlie Rose this week to discuss Bear Stearns and related matters.

The man who wrung out the inflationary excesses from the U.S. economy in the late 70s and early 80s is concerned about the Fed bailing out an investment bank (as opposed to commercial banks)…

We’ve seen the Federal Reserve take more extreme measures in some respects than any that have been taken in the past to deal with a financial crisis, which raises some real questions about not only for the Federal Reserve and its authorities, but for the structure of the financial system… The Federal Reserve is designed to lend to banks. And the banks were considered to be at the center of the financial system, and lend liquidity, provide cash in return for good assets, when a bank got in trouble. Now they found in this case, where some of the investment houses were in trouble, and prototypically Bear Stearns …

But, and it's worth remembering here that Volcker belongs to the power elite… he's not sure what the Fed could have done differently, since he believes federal regulators somehow fell down on the job:

In this situation, they [the Fed] stepped in and nobody else was there to do it…They stepped into a vacuum, and I think quite appropriately, it’s a judgment they had to make. But is this what you want for the longstanding regulatory support system? My answer is no.

Later, Volcker decried something our own Bill Bonner has poked fun at — the mathematical models at the root of modern mumbo-jumbo finance…

The market was being run by mathematicians that didn’t know financial markets. And you keep hearing, you know, god, that event should only happen once every hundred years, according to my model. But those every hundred years events are coming along every two or three years, which should raise some questions.

Best part, though — he says his "feelings are hurt" because the Swiss franc is now at parity with the dollar.

About Dave Gonigam:

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.